Janes, Inc., is considering the purchase of a machine that would cost $610,000 a

Question

Janes, Inc., is considering the purchase of a machine that would cost $610,000 and would last for 7 years, at the end of which, the machine would have a salvage value of $61,000. The machine would reduce labor and other costs by $121,000 per year. Additional working capital of $7,000 would be needed immediately, all of which would be recovered at the end of 7 years. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables. Required: Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.) Net present value

Explanation / Answer

year cash flow 0 -617000 1 121000 2 121000 3 121000 4 121000 5 121000 6 121000 7 182000 NPV @ 11% -17443.089

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